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2016 (10) TMI 1248 - HC - Service TaxValuation - includibility - N/N. 1 of 2006 - whether the explanation to Item No. 7 in Notification no. 1 of 2006, issued by the respondent i.e. the sales tax department is enforceable in law in so far as it directs the inclusion of the value of free supplies used by a contractor in construction activity? - Held that - The explanation to Item No. 7 of the Notification which is been impugned in this case is worded in a neutral manner; it directs the inclusion of the gross value of the goods to the extent that goods are bought by the contractor, there can be no quarrel in its application. However, the problem in this case is that the petitioner claims that the goods were in fact supplied free of cost for the construction activity undertaken by its principle or the service recipient. In the light of the Intercontinental Consultants 2012 (12) TMI 150 - DELHI HIGH COURT and Bhayana Builders 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) , the petitioner s grievance is well founded. It is accordingly held that in cases where goods are supplied free of cost by the service recipient to the construction contractor of the service provider, the value of such goods shall be excluded from the gross amount in terms of explanation to Item No. 7 of the Notification 1 of 2006. Petition allowed - decided in favor of petitioner.
Issues:
- Interpretation of the explanation to Item No. 7 in Notification no. 1 of 2006 issued by the sales tax department regarding the inclusion of the value of free supplies used by a contractor in construction activity. Analysis: The main issue in this case revolves around the interpretation of the explanation to Item No. 7 in Notification no. 1 of 2006, which directs the inclusion of the value of free supplies used by a contractor in construction activity. The petitioner, a construction contractor, argues that the explanation is unjustified as it includes the value of free goods supplied by the service recipients. The respondents, on the other hand, justify the inclusion based on the definition of taxable service under Section 65 (105) (zzq) of the Finance Act. They explain that the service tax is leviable on the gross amount charged by the service provider, and the contractor is entitled to take credit for excise duty and service tax paid on input goods and services used for providing the construction service. Furthermore, the court refers to previous rulings, such as the Division Bench ruling in Intercontinental Consultants & Technocrats (P.) Ltd vs. Union of India, which held certain provisions invalid and emphasized that only the consideration paid for the taxable service should be subject to service tax. The court also mentions the ruling of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) in Bhayana Builders (P) Ltd. vs. Commissioner of Service Tax, Delhi, which addressed the inclusion of the value of free goods in service tax turnover. The court ultimately concludes that the value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service should be excluded from the taxable value or the gross amount charged. The explanation to Item No. 7 of the Notification is held to be neutral when goods are bought by the contractor, but in cases where goods are supplied free of cost, the value of such goods should not be included in the gross amount. As a result, the writ petition is allowed in favor of the petitioner, the construction contractor.
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